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FROM GREECE TO CALIFORNIA TO JAPAN, markets are beginning to worry about what traditionally is deemed a risk-free asset: government debt securities. And that arguably lies behind the rise in the price of gold.

In a provocative analysis, Standard & Poor's finds that gold is reflecting investor skittishness. And those concerns aren't just the usual ones typically associated with demand for the precious metal -- inflation -- but also concerns about the other safe harbor in times of trouble, supposedly risk-free government securities.

The traditional worry about excessive government debt is that it can be inflated away by central-bank money printing. The Federal Reserve can always buy Treasury securities without limit, forestalling any chance of default by the U.S. government. That, however, would involve an expansion of the central bank's balance sheet and, inevitably, produce Weimar-style hyperinflation.

But, at the risk of invoking the most dangerous term in finance and economics, there's something different this time. The governments about whose debts the markets most fret now cannot resort to the printing press.

These are the PIIGS of Europe -- Portugal, Italy, Ireland and Spain -- and most particularly the Hellenic Republic. As part of the European Monetary Union, their adoption of the euro has precluded their past easy out of devaluation.

Now, by contrast, the PIIGS are forced to conform to the monetary orthodoxy of the European Central Bank. And the ECB is doing its best to maintain the tradition of the German Bundesbank under its French president, Jean-Claude Trichet.

Greece, the PIIG whose finances are most suspect, won't get any "special treatment," Trichet vowed Thursday. He made that statement as the cost to insure Greek government debt against default soared even as Athens announced a plan to cut its deficit by 10 billion euros, or roughly $14.5 billion.

Meantime, the other sovereign debtor whose situation evinces real concern is the State of California, which is the seventh- or eighth-largest economy in the world, depending upon whose statistics you cite. As such, it vastly overshadows in importance other dicey sovereign debtors, such as the PIIGs. And like members of the EMU, California can't devalue to reduce its real debt burden.

According to CMA, a unit of the
CME Groupcme -0.19625480415406002%CME Group Inc. Cl AU.S.: NasdaqUSD122.05
-0.24-0.19625480415406002%
/Date(1481307498679-0600)/
Volume (Delayed 15m)
:
446846
P/E Ratio
28.44988344988345Market Cap
41499109959.6149
Dividend Yield
1.9664072101597705% Rev. per Employee
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(CME) that provide data on credit derivatives, California is ranked as No. 10 of the Top 10 default candidates among sovereign debtors, right behind Greece. No. 1 and 2 are Argentina and Venezuela, whose bonds should be rated M for mierda. (That's Spanish I didn't learn in school but on the streets of Washington Heights. If you took French, the comparable term is merde.)

Remember that unlike the federal government, states and localities typically have to balance their budgets. But, senior Obama adviser David Axelrod told Bloomberg News that Washington can't solve all the problems of the states such as California's.

Writing in its Market Intellect research note, Michael Thompson, S&P's managing director of Market, Credit and Risk Strategies, and Robert Keiser, senior director of the unit, contend the strength of gold reflects concerns about sovereign debt and inflation. A move above $1200 an ounce, its peak touched last month before its retreat back to the $1100 range, would signal renewed worries on those scores.

If consumer-price inflation concerns recede, gold out to trade lower, according to Thompson and Keiser, possibly below $1,000 an ounce, which ought to rally government securities. They note global investors would "appear to be worried that subpar global growth is damaging sovereign fiscal stability and credit quality, which may lead governments to respond by inflating their way out of their current predicament." If so, they contend investors ought to keep a close watch on gold, measures of consumer-price inflation and sovereign-debt risk.

For now, the biggest sovereign debtor -- the U.S. Treasury -- is attracting strong demand for its debt, as shown by spirited bidding for its $84 billion of new notes and bonds this week. Of course, the U.S. is unique in being able to borrow in what is, for now, the world's main currency for transactions and as a store of wealth.

Other debtor governments that don't enjoy that privilege, such as Greece and California, are seeing their bonds bid lower in price and higher in yield. Concerns that heretofore risk-free bonds of governments no longer are risk-free may be reflected in the gold price.

But these debtor governments can't inflate away their debt burdens. So, their bonds have not-insignificant default risk. Given that, gold's rise may be seen as demand for an asset not subject to the vagaries of government borrowings.